Yes, you pay tax on dividends, but the rate depends on the type of dividend and how long you held the stock
Dividends are taxable income. The IRS treats them as earnings, and you report them on your tax return. However, not all dividends are taxed the same way. may have access to dividends — dividends from stocks you held for a set period — are taxed at lower rates than ordinary dividends, which are taxed as regular income. The exact amount you owe depends on your total income for the year and which tax bracket you fall into.
You receive a tax form called a 1099-DIV from your brokerage or investment company by January 31 each year. This form lists all the dividends you received in the previous year and breaks them into categories. You use this form to report your dividend income when you file your taxes.
Key Takeaways
- may have access to dividends are taxed at 0%, 15%, or 20% depending on your income level, while ordinary dividends are taxed at your regular income tax rate.
- To may have access to for the lower tax rate, you must have held the stock for more than 60 days during a 121-day window around the dividend payment date.
- Your brokerage sends you a 1099-DIV form showing dividend income, which you report on your tax return.
- Dividends received in tax-advantaged accounts like 401(k)s and IRAs are not taxed until you withdraw the money, or not at all in a Roth account.
The difference between may have access to and ordinary dividends
may have access to dividends are paid by U.S. corporations or may have access to foreign corporations on stocks you held long enough. To meet the holding period requirement, you must own the stock for more than 60 days during the 121-day window that starts 60 days before the ex-dividend date. The ex-dividend date is the cutoff — if you buy the stock on or after that date, you do not receive that dividend payment.
Ordinary dividends do not meet the holding period test, or they come from sources like real estate investment trusts (REITs), master limited partnerships (MLPs), or preferred stock. Ordinary dividends are taxed as regular income at your marginal tax rate, which can be as high as 37% for high earners.
Your brokerage will tell you which dividends are may have access to and which are ordinary on your 1099-DIV form. Box 1a shows ordinary dividends; Box 1b shows may have access to dividends.
Tax rates for may have access to dividends
may have access to dividends are taxed at one of three rates: 0%, 15%, or 20%. Your rate depends on your filing status and your total taxable income for the year, not on the dividend amount alone.
| Tax Rate | Single Filers | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 0% | Up to $47,025 | Up to $94,050 | Up to $47,025 | Up to $62,700 |
| 15% | $47,025 to $518,900 | $94,050 to $583,750 | $47,025 to $291,875 | $62,700 to $551,350 |
| 20% | Over $518,900 | Over $583,750 | Over $291,875 | Over $551,350 |
These income thresholds change each year. The amounts shown are for the 2024 tax year. If your income falls in the 0% bracket, you pay no federal tax on may have access to dividends. If you are in the 15% bracket, you pay 15% on may have access to dividends. If you are in the 20% bracket, you pay 20%.
How to report dividends on your tax return
You report dividend income on Schedule B (Interest and Ordinary Dividends) if your total dividends and interest exceed $1,500, or on Form 1040 directly if they are below that threshold. Your 1099-DIV provides the numbers you need.
If you use tax software like TurboTax, H&R Block, or TaxAct, you enter the amounts from your 1099-DIV into the dividend section, and the software calculates your tax. If you file by hand or with a tax professional, you transfer the ordinary dividend total to one line and the may have access to dividend total to another. The software or your preparer then applies the correct tax rate based on your income.
You must report all dividends, even small ones. If you received dividends from a mutual fund or brokerage account, that income appears on your 1099-DIV. If you received dividends from a stock you own directly, your broker still reports it on the form.
Dividends in retirement and tax-advantaged accounts
Dividends earned inside a 401(k), traditional IRA, or SEP IRA are not taxed in the year you receive them. The dividends stay in the account and grow tax-deferred. You pay income tax on the entire withdrawal amount when you take money out in retirement.
Dividends in a Roth IRA or Roth 401(k) are never taxed, as long as you follow the withdrawal rules. You can withdraw earnings tax-free after age 59½ and after the account has been open for at least five years.
Dividends in a 529 education savings plan are tax-free if you use the money for may have access to education expenses. If you withdraw the earnings for other purposes, you pay income tax on the earnings plus a 10% penalty.
State and local taxes on dividends
Most states tax dividend income as regular income. The state tax rate varies by state and by your income level. A few states — including Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not tax dividend income at all.
Some states tax dividends at a flat rate regardless of your federal bracket. Others use a progressive system similar to federal tax. Your state tax return will ask for dividend income, and you report the same amounts from your 1099-DIV.
Local taxes on dividends are rare but do exist in some cities and counties. Check your local tax authority's website if you live in a major city.
What happens if you do not report dividends
The IRS receives a copy of every 1099-DIV your brokerage sends to you. If you do not report the dividends on your tax return, the IRS will notice the discrepancy. You may receive a notice asking you to pay the tax owed plus interest and penalties.
Even if the dividend amount is small, report it. The cost of filing correctly is far lower than the cost of dealing with an IRS notice later.
Frequently Asked Questions
Do I have to pay tax on dividends if I reinvest them?
Yes. Whether you take the dividend as cash or reinvest it in more shares, you owe tax on the full amount. Reinvestment does not change your tax obligation. You still report the dividend on your 1099-DIV and pay tax based on the type of dividend and your income level.
What if I sold the stock before the ex-dividend date?
If you sold the stock before the ex-dividend date, you do not receive the dividend and do not report it on your taxes. The new owner receives the dividend and reports it instead. Your brokerage will not include it on your 1099-DIV.
Are foreign dividends taxed differently?
Foreign dividends from non-U.S. companies are taxed as ordinary income unless they meet the may have access to dividend rules. Some countries withhold taxes on dividends before sending them to you. You may be able to claim a foreign tax credit on your U.S. return for taxes withheld. Report the gross dividend amount (before withholding) on your 1099-DIV.
Do I owe tax on dividend income if I did not work that year?
Yes. Dividend income is separate from wages. Even if you had no job income, you must report dividend income and pay tax on it if it exceeds the standard deduction for your filing status. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly.
Can I deduct investment losses against dividend income?
Yes. If you sold stocks at a loss, you can use those losses to offset dividend income and other capital gains. If your losses exceed your gains and dividend income, you can deduct up to $3,000 of the excess loss against other income in that year. Any remaining loss carries forward to future years.